Union negotiations at Starbucks expected to resume

When Starbucks and its baristas union resume contract negotiations this week, workers could have new momentum behind them — thanks to the company’s own CEO.

Last month, the coffee giant had an objectively difficult quarter. In the United States, same-store sales fell 3% and traffic fell 7%. As a result, the company has lowered its forecast for 2024.

CEO Laxman Narasimhan admitted that Starbucks is seeing a more cautious consumer about spending, but also cited the need to make store improvements as the company sees worrying trends. Starbucks reported rates of incomplete mobile app orders in the mid-teens and said casual customers were coming in less.

Narasimhan, in prepared remarks to Wall Street analysts, cited some of the challenges that union workers have highlighted in their bid for better working conditions.

“Specifically in our U.S. stores, we are working to create a more stable environment for our partners through investments in equipment innovation, process improvements, staffing, scheduling and waste reduction , all of which our partners value and prioritize creating a more satisfying work environment in our stores while reducing risk to our business,” Narasimhan said on a call with analysts.

He added in an interview with CNBC’s “Squawk on the Street” that throughput has improved, and said the company’s action plan would continue to build on that momentum with improvements in stores and better communication of value.

“We have improved service speed quarter over quarter. If you look at the processes that we deploy, particularly at peak times, what we see is that we have opportunities to further improve this is thanks to changes in the processes and tools we provide to partners at the summit,” Narasimhan said.

For Workers United, the union behind the organizing at Starbucks, his admission that more could be done was promising.

Union organizing efforts began nearly three years ago in Buffalo, New York, under the leadership of then-CEO Kevin Johnson. At the time, Starbucks was a company long known for its progressive benefits for its workers.

But baristas, emboldened by their experiences during the Covid-19 pandemic, have pushed for changes at the company’s cafes. More than 430 unionized stores and two CEOs later, both sides have made “significant progress” in contract negotiations, striking a more optimistic tone after a successful two-day session last month.

Starbucks and the union are coming together to continue working on the framework that will inform every single-store contract moving forward.

“I think we’re seeing at this point the company recognizing that there are problems, significant problems,” Michelle Eisen, a Workers United delegate and founding member of the company’s first organized union in Buffalo, told CNBC , before the negotiations.

“We heard Narasimhan make that statement after the earnings conference call, saying that they were aware that the stores were having staffing issues,” said Eisen, who has been with the company for more than a decade and does part of 150 delegates participating in in-person bargaining sessions with Starbucks on behalf of the union.

“I think it’s a new world right now to be able to say that the CEO stepped up and said, ‘Look, we have problems, we know we have problems, we want to work on solving them.’ problems,” Eisen said. “And as a worker at a unionized site, with proposals on the table to help resolve these issues, that’s exactly what I want to hear.”

In internal surveys and at bargaining committee meetings, union-represented partners consistently rank “staffing and scheduling” as their top priority. The vast majority of partners represented report frequently working with reduced staff, and a simple majority say they are scheduled for fewer hours than they want or need.

The union also demanded better wages and benefits.

Starbucks says it has made significant progress over the past two years in staffing and planning. An advanced staffing model is able to take into account both historical trends in hours allocated per store, but also current trends, product types available and upcoming promotions, the company said. Starbucks says its data confirms that partners now have more hours and that partner loyalty and sentiment have both increased in the U.S. as schedules become more stable and consistent.

Staffing improvements will likely be even greater as Starbucks anticipates increased traffic and orders.

In July, Starbucks plans to open its mobile ordering and payment app to non-rewards members in an effort to win back its casual customer base. This will create the opportunity to target all customers with new products and promotions in an effort to increase traffic.

It is also expected to introduce what it calls the Siren System: new equipment and protocols to manage customer ticket times. The Siren system includes a custom ice dispenser, milk dispensing system and faster mixers to reduce barista steps and get drinks to customers faster. It will reach 1,000 stores in July.

“It’s a terrible feeling to be on this floor and pull off a sticker and look at the time, then look at the clock on the wall and realize you’re already 8 minutes late,” Eisen said about mobile orders.

“Eight minutes doesn’t sound like a lot. But when you’re doing 100 transactions in a half hour…and you realize you’ve probably lost 20 drinks, it’s a bad feeling,” she said.

There has been another call for change at Starbucks stores that could carry weight at the negotiating table. Former Starbucks CEO Howard Schultz said in a LinkedIn post after the company’s earnings report was released that management needs to spend more time with workers to understand current challenges.

It was the third time he has spoken publicly about Starbucks and its operations since leaving the company and its board last year. This is a notable change in tone from Schultz’s return to the company in 2022 to respond to the union challenge, with a much more combative attitude.

Narasimhan was mentored by Schultz for six months before taking over the company, and he spent time in stores with baristas, even earning his barista certification before becoming CEO in 2023.

“I emphasized that the company’s solution must start domestically: U.S. operations are the primary reason for the company’s fall from grace,” Schultz said. “Stores require a maniacal focus on the customer experience, through the eyes of a retailer. The answer lies not in data, but in stores.”

At the time, the coffee giant responded: “We always value Howard’s perspective. The challenges and opportunities he highlights are ones we are focused on. And like Howard, we are confident of success long-term future of Starbucks.”